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November 4 – 7, 2014 | The Fairmont, Dallas, TX | USA
SUMMARY
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World Shale Series: Fifth World Shale Oil & Gas Summit
About the Author
Susan Sakmar
Susan L. Sakmar is currently a visiting Professor of Law at the University of Houston Law Center
where she teaches a seminar on Shale Gas & LNG that focuses on regulatory and environmental
issues facing the global gas industry. She is licensed to practice law in California and has over 20 years
of experience working in a variety of legal, corporate and nonprofit environments. Her experience
includes attorney in the commercial litigation department of a San Francisco law firm, accountant
for Chevron Corporation, and Board Chair for the Jane Goodall Institute, an environmental nonprofit
founded by world renown chimpanzee expert Dr. Jane Goodall. Professor Sakmar has consulted
on various regulatory and environmental issues facing the global shale gas and LNG industries
and recently published a book on the global LNG industry titled “Energy for the 21st Century:
Opportunities and Challenges for LNG,” that is now available on Amazon.
Executive Summary
The World Shale Oil & Gas Summit was held November 4-7, 2014 in Dallas,
Texas and brought together industry leaders from over 25 countries from
across the world. More than 100 companies heard the latest updates in the
shale industry from over 50 national and international industry experts.
While the industry continues to develop and evolve in the US and internationally, interest in the
prospects of global shale oil and gas development has remained strong in light of the significant benefits
development could have for many countries in terms of energy security and economic growth.
This year’s conference agenda reflected a strong interest in lessons that can be learned from the success
of North American shale oil and gas development with particular focus on the elements of a successful
regulatory framework, best practices for managing environmental impacts and community engagement,
and the importance of maximizing value by focusing on liquids rich and tight oil plays which continue to
be the focus of operators in North America as natural gas prices remain low. Delegates were also eager
to hear about recent developments in US LNG exports.
The importance of technology was a again a key theme of the World Shale Oil & Gas Conference with the general
recognition that the incredible success and abundance of North American shale gas production could not have
happened without continuous advances in technology. By now, most delegates are aware that the combined
technologies of horizontal drilling and hydraulic fracturing were the key to unlocking the vast tracks of shale gas
found in the US. But the continued strong growth in shale oil and gas production in the US and elsewhere will
depend upon further innovations and continuous improvements to maximize performance and returns.
International development opportunities were also in focus with particular interest in Mexico’s recently
enacted energy reforms, as well as opportunities in key countries in the Asia Pacific region, including
Australia, China and India.
This report is broken down into six major sections that highlight the key conference themes that emerged
from the presentations and discussions that took place over the course of the event.
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Section 1: The Big Picture: What are the Key Drivers for the
World’s Shale Energy Outlook?
Gregg Kantor, CEO of Northwest Natural and the current Chairman of the American Gas Association,
kicked off the conference by providing an overview of the many opportunities for natural gas in the 21st
century including the role of natural gas as a cleaner burning fuel that can help countries meet their
environmental goals. Mr. Kantor referenced a recent study released by AGA and IHS CERA “Fueling the
Future with Natural Gas: Bringing it Home” that highlights the growth opportunities natural gas provides
to all sectors of the economy, including residential, industrial, power and transportation.
Mr. Kantor also addressed the role of technology in the shale gas industry and noted that innovation
has dramatically impacted how we live, including how we power our world in the future. Similar to the
development of computers in the 1980s, we are only at the beginning of the shale technological revolution.
Jérôme Ferrier, President, International Gas Union highlighted the world of opportunity for global shale
oil and gas and mentioned the US EIA’s reports on Worldwide Shale Oil and Gas Resources.
While various assessments are underway in many countries, one of the most widely known studies was
released in 2011 by the US EIA and assessed 48 shale basins in 32 countries containing almost 70 shale
gas formations. Even with this limited assessment, that study found that the international shale gas
resource base is “vast” – with technically recoverable resources of 6,622 Tcf.
An updated assessment from the EIA was released in June 2013 that also included an initial assessment
of worldwide shale oil resources. That assessment indicates technically recoverable resources of 345
billion barrels of world shale oil resources and 7,299 trillion cubic feet of world shale gas resources. The
new global shale gas resource estimate is 10 percent higher than the estimate in the 2011 report. (Figure 1)
Figure 1 Worldwide Shale Oil and Gas Formations
Source: US EIA/ARI, World Shale Oil and Gas Resources (2013),
http://www.eia.gov/analysis/studies/worldshalegas/
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World Shale Series: Fifth World Shale Oil & Gas Summit
Policy Makers Need to Align Shale Gas Drivers with the General Public
As a clean-burning fuel, many business and policy leaders have begun to look to natural gas to meet
growing energy demand using more environmentally sustainable fuels. In most countries, however, the
“case for gas” is still being developed with policy makers weighing a number of “shale gas drivers” including
energy security, diversity of supply, lowering energy costs, emissions and a host of other reasons. It should
be noted that in the US, one of the main “drivers” of the shale gas revolution is the fact that individual
landowners generally own the oil and gas rights and therefore receive a direct financial benefit when
those resources are developed. For other countries without this incentive, it may be more difficult to
convince the general public that a significant driver exists for development of shale gas in their country.
Mr. Ferrier referenced the International Energy Agency’s (IEA), Golden Rules for a Golden Age of Gas Report,
which highlights what needs to be done to ensure industry earns community support for its operations – or
what the global gas industry refers to as the “social license to operate.” In that Report, the IEA cautioned that
natural gas is poised to enter a “Golden Age” but only if a significant amount of the world’s unconventional
gas resources are brought to market. This requires considerations of both the profitability of shale gas as
well as whether policy makers and the industry successfully address the legitimate public concerns that
have been raised about the associated environmental and social impacts of shale gas development.
To that end, the IEA suggested seven “golden rules” – framed as best practices – with the goal of aiding industry,
governments and other stakeholders to “earn and maintain a social license to operate.” The seven golden
rules highlight the prevailing view that full transparency, measuring and monitoring environmental impacts and
engagement with local communities are critical to addressing public concerns about shale gas development.
Is the US Shale Gas Revolution Exportable?
Aubrey McClendon, former CEO of natural gas giant Chesapeake Energy and now the CEO and Founder of
American Energy Partners explained that the American shale revolution was made possible by the combination of
entrepreneurial spirit, expansive infrastructure and the private ownership of mineral rights which makes the United
States unique. For these reasons, plus the fact that there is no worldwide equivalent to the US independent producer,
he expressed the opinion that the US shale experience is unlikely to be “exportable” or replicated in other countries.
However, even if the North American shale revolution is not directly “exportable,” industry experience
and best practices can be shared internationally and this overarching theme provided for many good
discussions throughout the conference.
What Will Shale Development Mean For The World’s Energy Security
And Economic Development?
•
•
First, it depends on whether you believe the U.S. shale
revolution is exportable
I believe it is largely not exportable:
−
−
−
−
−
•
No worldwide equivalent to the U.S. independent
producer, an enormously entrepreneurial and
unique economic creature
Costs matter: U.S. is a low cost producer in the
world, including related lifting and social costs
U.S. cost advantage is not replicable elsewhere service and supply and midstream infrastructure
not in place elsewhere
Private ownership of minerals in the U.S. more
likely to align mineral and surface owners
Environmental scare tactics haven’t worked in the
U.S. because of the industry’s solid body of work
In summary, shale development will strengthen the
U.S. very materially – indirectly, it will benefit the world,
but not directly
Slide presented by Aubrey McClendon, CEO and Founder, American Energy Partners
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World Shale Oil & Gas Summit
November 5, 2014
CONFIDENTIAL
www.world-shale.com
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World Shale Series: Fifth World Shale Oil & Gas Summit
The longer-term view of global shale gas was presented by Lars Sørum, Director Unconventional Gas,
DNV GL Oil and Gas who explained that global unconventional gas and oil is still in the early development
stages with most countries still in the immature stage (shown in yellow in the map).
A global maturity assessment of Unconventional Oil and Gas
Slide presented by Lars Sørum, Director Unconventional Gas, DNV GL Oil and Gas
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DNV GL © 2013
Over time, unconventional oil and gas is likely to become very important as countries seek to diversity
their energy supply and also to replace dwindling conventional resources.
Unconventional oil and gas will continue to be increasingly
important as conventional sources are dwindling and shale access
is soaring
 Growth in production of oil is and will
continue to be from Shale Oil
 Production of Shale Gas is marginalizing
conventional exploration
Slide presented by Lars Sørum, Director Unconventional Gas, DNV GL Oil and Gas
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DNV GL © 2013
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World Shale Series: Fifth World Shale Oil & Gas Summit
Significant growth in unconventional gas could occur if more countries seek to displace more polluting
coal with cleaner burning natural gas. By 2020, DNV expects a more mature global unconventional oil
and gas industry with development underway in Russia (bright green on map) and at a more advanced
state in many countries including China, Australia, Argentina and elsewhere (shown in green).
2020 scenario - innovation in the entire value chain is necessary
to break down barriers to develop unconventional oil and gas
Slide presented by Lars Sørum, Director Unconventional Gas, DNV GL Oil and Gas
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DNV GL © 2013
Geopolitical Impacts of the US Shale Revolution
Numerous speakers, including Edward Morse, Managing Director and Global Head of Commodities, Citi
Research, noted that the abundance of shale oil and gas is having geopolitical impacts – especially as oil
falls below $90 and geopolitical disruptions to oil supply continue.
How this plays out over the longer term is unclear but for the moment, US shale production has “muscled”
out OPEC and other suppliers, causing some countries to feel the “budgetary pain” of lower oil prices.
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World Shale Series: Fifth World Shale Oil & Gas Summit
Sub-$90 oil prices: how did we get here, where are we going?
North America is growing oil supply at well over 1-m b/d per year, against a background of weak global oil
demand, a stronger dollar, with a broad macro sell-off too; bullish geopolitics have been eclipsed for now…
Brent crude oil prices breaking out of its range to lower
levels ($/bbl)
160
Brent
1yr MA
Yearly min
Global geopolitical supply disruptions matched by growth
in North American oil production (m b/d)
Yearly max
140
120
100
80
60
40
20
0
Geopolitical disruptions to oil supply (m b/d) – Libya and
Iran remain wildcards, Venezuela and others too
Iran
Libya
Nigeria
Iraq
Sudan / S. Sudan
Syria
Yemen
Some seasonal support in the short term: global refinery
runs set to rise from October nadir (m b/d)
Other non-OPEC
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
Jul-14
Oct-14
Apr-14
Jan-14
Jul-13
Oct-13
Apr-13
Jan-13
Jul-12
Oct-12
Apr-12
Jan-12
Jul-11
Oct-11
Apr-11
0.0
Jan-11
0.5
Source: Bloomberg, EIA, Citi Research
1
Slide presented by Edward Morse, Managing Director and Global Head of Commodities, Citi Research
OPEC braces for a face-off with US shale
The 20% drop in crude prices is a ~$200bn hit to OPEC revenues. The Saudis are lowering OSPs, indicating
they want OPEC to share brunt of cuts. But the surplus is in light sweet crude; much of OPEC output is heavy.
Fiscal breakeven prices for selected oil producers ($/bbl)
Algeria
Bahrain
Iran
Iraq
Kuwait
Libya
Oman
Qatar
Russia
Saudi Arabia
UAE
Venezuela
Yemen
2011
110
111
84
95
46
149
78
79
90
78
93
140
195
2012
125
119
130
102
49
63
80
69
106
78
78
175
237
2013
111
125
127
106
51
111
84
45
108
89
84
168
215
2014
132
125
131
111
54
317
99
55
105
98
79
161
160
2015
131
127
131
101
54
184
103
60
107
106
77
151
145
Eagle Ford well breakeven prices ($/bbl, y-axis) for
various IP rates (b/d, x-axis), at various well costs ($MM)
$120
MENA petrostates could fragment on factional lines
KURDISTAN
Tripoli
FEZZAN
$90
6
$80
7
$70
8
$60
$50
$40
$30
$20
9
10
11
12
Erbil
IRAQ
SUNNISTAN
Baghdad
SHIITESTAN
N. ARABIA
LIBYA
Sabha
CYRENAICA
EAST Ad Dammam
Riyadh
ARABIA
WEST
ARABIA SAUDI
Jeddah Mecca
ARABIA
WAHHABISTAN
SOUTH
ARABIA
EAST
YEMEN
Sana YEMEN
WEST
YEMEN
Aden
US shale liquids production growth scenarios (m b/d) –
robust growth even in the face of reduced prices, capex
10
$100
Misrata Benghazi Jabhal Al-Druze
TRIPOLITANIA
$110
$MM
ALAWITESTAN
SYRIA
m b/d
9
10% prod gains 100%
rigs
8
10% prod gains 80%
rigs
7
0% prod gains 100%
rigs
6
0% prod gains 80% rigs
5
0% prod gains 60% rigs
4
2014 2015 2016 2017 2018 2019 2020
Source: IMF, EIA, DrillingInfo, NY Times, Citi Research
* Net oil imports are net imports of crude and petroleum products, including NGLs
4
Slide presented by Edward Morse, Managing Director and Global Head of Commodities, Citi Research
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World Shale Series: Fifth World Shale Oil & Gas Summit
Section 2: The Latest Trends in Shale Oil and Gas Development
The Shift to Liquids Rich Plays and Tight Oil
For the past several years, low natural gas prices in the US have shifted the drilling rig count towards liquidsrich gas plays and more and more towards tight oil plays. The US Eagle Ford in South Texas, the Bakken in
North Dakota, and the Permian Basin in West Texas, are three of the most successful tight oil plays.
North America’s major growth plays
Slide
by Benjamin
Shattuck, Upstream Analyst – Lower 48, Wood Mackenzie
2 presented
Trusted commercial
intelligence
www.woodmac.com
As explained by Benjamin Shattuck, Upstream Analyst – Lower 48, Wood Mackenzie, these oil plays
offer some of the best returns so it is no surprise that capital has been flowing in these oil plays with
about $90B being spent on tight oil development in the Eagle Ford, Bakken, and Permian plays alone.
Estimates are that North American oil supply will grow by about 6 million b/d driven primarily by these
three big plays.
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How much is being spent on US Tight Oil?
US spend and breakout by top plays
100%
90%
Tight Oil
80%
70%
Conventional
Oil
60%
Heavy Oil
50%
Tight Gas
Bakken/Three
Forks
US$16.0 bn
Eagle Ford
US$27.5 bn
Wolfcamp
US$13.2 bn
40%
Shale Gas
30%
20%
Conventional
Gas
10%
2020
2019
2018
2017
2016
2015
2014
2013
Source: Wood Mackenzie
2012
2011
Coalbed
Methane
2010
0%
Marcellus
US$10.9 bn
Other Lower 48
~US$50 bn
Niobrara
US$6.1 bn
Bone Spring
US$5.0 bn
Source: Wood Mackenzie
Haynesville
US$2.1 bn
Utica
US$4.4 bn
Slide presented by Benjamin Shattuck, Upstream Analyst – Lower 48, Wood Mackenzie
4
Trusted commercial intelligence
www.woodmac.com
If oil prices continue to fall, however, the higher cost producers will be the first to take a hit and more
pressure will be on to reduce costs and gain efficiencies.
Rick Chamberlain, Director - Energy and Natural Resources, Berkeley Research Group, LLC highlighted
the scale of US operations and noted that BRG recognizes about 80 unconventional plays but most
attention is on the liquids rich and oil plays. According to Mr. Chamberlain, the US has drilled about 2.9
million wells to date with about 250,000 wells drilled since 2003. Mr. Chamberlain thinks there is still a
long way to go.
US LNG Exports
Many speakers noted that the abundance of shale gas and oil is paving the way for US LNG exports and
more recently crude exports with increased calls by the oil and gas industry for the Federal government
to amend current regulations to make it easier to export oil and gas. According to Mr. McClendon,
US policy makers need to move away from the thinking that energy is scarce to a view that energy is
abundant. However, this shift in thinking is already well underway in terms of US LNG exports with
almost 15 Bcf/d (approx. 120 mtpa) of LNG exports under contract with committed buyers and a growing
number of companies receiving export authority from the US Department of Energy (DOE).
According to Asish Mohanty, Senior Director, Galway Group, three projects are under construction and
he expects another two to four projects to take final investment decision (FID) in the next couple of
years. In the coming decade, North America has the potential to be the largest LNG supply source but
it remains to be seen how many projects in the US and Canada come to fruition.
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World Shale Series: Fifth World Shale Oil & Gas Summit
Which has led to more than 300 MMTPA of LNG
Export projects being proposed
• If all of them happen, North America will be
the largest LNG supply region in the world
• In fact, the current size of the Global LNG
market will grow by 1.25 times, which is
surreal!
• Will all of them happen? If not, around how
many?
• What will be the drivers/bottlenecks?
Alaska-Japan
5-20 MMTPA
Port of Valdez
19.5 MMTPA
Kitsault
Altagas/Idemitsu
BC LNG
1.95 MMTPA
Kitimat
10 MMTPA
LNG Canada
12 MMTPA
Pacific
NorthWest LNG
12 MMTPA
Western Canada
14 MMTPA
Woodfibre LNG
1.5 MMTPA
Grassy Point
H-Energy
4.5 MMTPA
Oregon LNG
9.6 MMTPA
Canaport
8.5 MMTPA
Jordan Cove
6 MMTPA
Sabine Pass
18 MMTPA
Magnolia
8 MTPA
Golden Pass
15.6 MMTPA
LNG Export
Project Name
Est. Size
Export Project Location
DOE Non-FTA Export Approved
Under Construction
Goldboro
10 MMTPA
Lake Charles
15 MTPA
Cameron
13.2 MMTPA
Gulf LNG
11.5 MMTPA
Freeport
13.2 MMTPA
Corpus Christi
13.5 MMTPA
South Texas
8 MMTPA
Gulf Coast LNG
22 MMTPA
Cove Point
5.3 MMTPA
Elba Island
2.5 MMTPA
CE FLNG
8 MMTPA
Lavaca
4.4 MMTPA
NEB-Approved for Export
Galway Energy Advisors
Main Pass
24 MMTPA
LLNG
2 MMTPA
4
Slide presented by Asish Mohanty, Senior Director, Galway Group
While US LNG export projects have garnered the most attention, in part because of the unique pricing
structure based on Henry Hub (HH), Canada also has a massive amount of LNG projects proposed.
Delegates were keen to hear the latest on Canadian LNG exports from Francois Nguyen, Director,
International Energy Policy Branch, Alberta Energy. According to Mr. Nguyen, Canada has significant
gas resources and is well positioned to access the growing Asian region and supply cost competitive gas
to add to Asia’s supply diversity.
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Significant shale potential in Western Canada
Source: Wood Mackenzie
Slide presented by Francois Nguyen, Director, International Energy Policy Branch, Alberta Energy
Section 3: Best Practices and Technology to Enhance
Operational Efficiency and Reduce Environmental Impacts
The importance of technology was emphasised throughout the conference with the recognition that
the continued success of North American shale gas and oil is dependent on continuous advances in
technology, as well as further innovations in drilling and well completions.
Delegates were interested to learn the latest technological advancements from a panel moderated
by Richard E Green, Senior Principal Consultant, DNV GL North America. As explained by Robert J
Banks, Executive Vice President & Chief Operating Officer, Swift Energy, operators need to be careful of
the “manufacturing mode” or “cookie cutter” approach that can lead to under-engineered and underperforming wells. A customized manufacturing approach will better serve to optimize each area. Once
an area is commercially viable, operators need to test the technological limits to really determine what
the true value is. One of the reasons the US shale gas and oil boom has been able to continue is that
operators have leveraged technology to maximize output, which has resulted in a reduction in the
number of drilling days as well as a reduction in drilling well cost. In addition, longer laterals have
increased operational efficiencies and led to more productive wells.
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World Shale Series: Fifth World Shale Oil & Gas Summit
Drilling Performance – Eagle Ford
$5.0
$4.5
Drilling Well Cost
40
$4.4
$4.0
$3.5
35
$4.0
$3.0
2011
2012
2013
Drilling Well Days
41
30
$3.1
$2.5
$2.0
45
$5.3
Days / Well
Well Cost MM$
$5.5
2014
31
25
28
23
20
15
2011
2012
2013
2014
Lateral Length Per Well
6,500
6,410
Lateral Feet / Well
6,000
5,500
5,000
5,718
5,744
2012
2013
5,268
4,500
4,000
2011
2014
15
Slide presented by Robert J Banks, Executive Vice President & Chief Operating Officer, Swift Energy
Jeffrey Meisenhelder, Vice President Unconventional Resources Group, Schlumberger was careful to
explain that simply drilling more wouldn’t necessarily lead to improved production. Even in the US, there
are more efficiency gains to be had since over half of the wells drilled in the US are uneconomic for a
variety of reasons and over 40% of perforations do not produce.
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High variance of economics in shales..
Observations
Half the wells drilled in US are
uneconomic
n 
- Drilled in wrong place
- Landed in wrong zone
- Poorly Completed
Marcellus Gas Breakeven Price
Quintile 5
Quintile 4
Quintile 3
Quintile 2
Quintile 1
$-­‐
- Damaged during flowback
~40% of perfs don’t produce
n 
- Geometric completions, no data
- Different rocks in same frac stage
(variable CQ)
$4.00
Quintile 2
$4.07
$6.00
Quintile 3
$5.35
$8.00
$10.00
Quintile 4
$7.29
$12.00
Quintile 5
$10.00
Bakken Oil Breakeven Price
Quintile 5
Quintile 4
Quintile 3
Quintile 2
Quintile 1
$-­‐
Operator breakeven analysis – PFC Energy 11 Feb 2014
$2.00
Quintile 1
Marcellus Gas
$2.72
Bakken Oil
$20.00 $40.00 $60.00 $80.00 $100.00 $120.00 $140.00
Quintile 1
$41.12
Quintile 2
$57.95
Quintile 3
$75.13
Quintile 4
$85.51
Quintile 5
$123.69
4
Slide presented by Jeffrey Meisenhelder, Vice President Unconventional Resources Group, Schlumberger
Operators need to build efficiency in to their operations through technology application, good project
management, and supply chain management. In order to be effective, operators need to make datadriven decisions and maximize the production outcome from every dollar spent. By applying a
disciplined, integrated process to appraisal, risks will be minimized and first production accelerated.
Most importantly, operators need to continue to learn as the play develops and recognize that every play
may require different technical solutions.
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World Shale Series: Fifth World Shale Oil & Gas Summit
Among the many uses of technology in shale plays are new technologies to minimize the environmental
impact of shale gas production. As explained by Mark K Boling, Executive Vice President, Southwestern
Energy Company, President, Southwestern’s V+ Development Solutions Division, one of the impacts
industry and policy makers are focused on is methane emissions. We know there are emissions sources
from natural gas development and we also know there are various reduction technologies available.
Methane Emissions
Emission Sources
• Well Completions
• Storage Tanks
• Pneumatic
Controllers
• Equipment Leaks
• Liquids Unloadings
• Compressors
Reduction Technology
• Green Completions
• Vapor Recovery Units
• Low Bleed/No Bleed
Pneumatics
• LDAR Program
• Plunger Lift
• Seal Maintenance
Emission Levels
•
•
•
•
•
EPA
Industry
State regulators
Research groups
Top-Down vs.
Bottom-Up Analysis
1
Slide presented by Mark K Boling, Executive Vice President, Southwestern Energy Company, President,
Southwestern’s V+ Development Solutions Division
What is in dispute is the emission levels with various stakeholders (EPA, industry, regulators, and others)
all offering different levels of estimated leakage rates from shale gas development.
Mr. Boling discussed the various frameworks that are being considered to measure, monitor and regulate
methane emissions. A technology-based framework identifies major emitting sources and also identifies
“cost-effective” emission control technologies for these sources. This is a “one-size fits all” approach
and control technology is applied on all affected sources regardless of emissions profile. Monitoring,
recordkeeping and reporting is focused on the control technology, not the emissions. This method
assumes emission reduction benefits are based on EPA derived “factors” and presumed performance of
control technology.
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Methane Leakage rate as percentage of gross production
Estimated Leakage Rates
13.00%
$0.9BB/yr
Loss in Revenue
$13 BB/yr
12.00%
11.00%
10.00%
9.00%
8.00%
7.00%
6.00%
5.00%
4.00%
3.00%
2.00%
1.00%
0.00%
• ~0.2-3.3 tcf of natural gas estimated to be lost in the supply chain
2
• ~$0.9BB/yr-$13 BB/yr of product loss
Slide presented by Mark K Boling, Executive Vice President, Southwestern Energy Company, President,
Southwestern’s V+ Development Solutions Division
A performance-based framework is a flexible program for reducing methane emissions from the entire
natural gas supply chain. This is an emissions intensity framework, which is based on achieving an
eventual 1% leakage rate across the natural gas supply chain. This would update EPA inventories and
establish credible baseline emissions numbers using the latest science and data. Each sector is assigned
a leakage rate goal and transparent and verifiable annual emission accounting and emissions data
reporting standards are established. A company can “average” its emissions across all its operations to
meet its goals. A performance-based framework incorporates existing and new technologies, but does
not mandate any specific technology or practice.
One of the advantages of a performance-based framework is that it optimizes capital deployment in
reducing methane emissions and is less costly than the technology-based, command-and-control “one
size” programs. This is also the most effective way to address “fat-tail” or “super-emitters” in managing
methane emissions.
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World Shale Series: Fifth World Shale Oil & Gas Summit
The importance of reducing methane emissions was also highlighted by Drew Nelson, Senior Manager,
Natural Gas, Environmental Defense Fund (EDF), who pointed out that even though natural gas burns
cleaner than coal, methane is an incredibly potent greenhouse gas (GHG) so it is a concern from a
climate change standpoint. This is especially true since about 25 percent of the man-made warming we
are experiencing today is caused by methane. The good news is that reducing methane is cheap! Studies
have shown that there many ways to reduce methane at little to no cost.
Reducing Methane is Cheap
Slide presented by Drew Nelson, Senior Manager, Natural Gas, Environmental Defense Fund (EDF)
Mr. Nelson also pointed out that reducing methane emissions and environmental impacts of shale gas
development is more important than ever with a new Pew poll finding that more Americans (49%)
oppose an increased use of fracking than support it (44%). Moreover, the reputation of the oil and gas
industry is at risk with a recent Gallup poll showing that 56% of the US has negative views about the oil
and gas industry – an even worse showing than the negative views about lawyers which is only 40%.
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Section 4: Regulatory Regimes: What are the Optimal
Frameworks and which Stakeholders Should Take the Lead?
In light of the Gallup Poll results mentioned above, the next panel was particularly relevant since, as
noted by Robert J Downing, Shareholder and Partner the international law firm of Greenberg Traurig,
there was a 96% disapproval rating of the people in the room! The general topic of the panel was what
role does regulation play in helping to win over public acceptance and what regulatory frameworks are
emerging in shale gas development.
Moderated by Susan L Sakmar, Visiting Assistant Law Professor, University of Houston Law Center, the
panel brought together a diverse set of experiences with decades of knowledge from Cal Cooper, Director
Special Projects & Emerging Technology, Apache Corporation, John Tintera, Regulatory Advisor, Texas
Alliance of Energy Producers, Patrick D Hedren, Counsel for Regulatory Advocacy, General Electric
Company, Robert J Downing, Shareholder, Greenberg Traurig and Stephen Lindsey, Senior Director of
Governmental Affairs & Community Relations, Quicksilver Resources Inc.
In order to earn the social license to operate, governments must develop a successful regulatory
framework to ensure that environmental impacts are adequately regulated and managed. The public
must also be convinced that the regulatory framework is adequate to address the real risks and that it
will be adequately enforced. Ensuring local support for shale gas development is particularly important
and challenging in light of how much negative attention has been focused on fracking. However, as
noted by Mr. Lindsey, who not only engages with communities for Quicksilver but also is an elected
official in Texas, communities often oppose any development in their area, including parks, so it’s not just
oil and gas development that draws opposition. In general, communities must be convinced that they
will benefit from the new activity – whatever that activity happens to be.
In general, most countries that are considering shale gas development are following conventional oil and
gas frameworks if those exist. This has been the experience in the US, which regulates its conventional
oil and gas industry through a variety of federal, state, and local laws and regulations. As explained by
the panelists, while various federal law protections exist to mitigate environmental impacts, regulation of
shale oil and gas development is largely left to the individual States, which regulate through an oil and
gas agency, an environmental agency, or usually both.
This means, for example, that State and local governments typically deal with issues regarding permitting,
well spacing, operation, abandonment, surface disturbance, wildlife, worker health and safety, discharges,
water and waste management and disposal, and air emissions. As explained by Mr. Tintera, who formerly
worked for the Texas Railroad Commission which regulates oil and gas activity in Texas, states with a
long history of oil and gas production are well equipped and have the experience to deal with the issues
that have come up regarding shale oil and gas development.
In many areas in the US, conventional oil and gas regulations are evolving to deal with the opportunities
and challenges of shale gas development and a number of US states, including Texas, Colorado and
Pennsylvania, have modified and/or enacted new regulations to address issues raised with unconventional
oil and gas development, including issues related to water management and induced seismicity, or
earthquakes.
Industry is also responding to the challenges posed by increased shale oil and gas development and are
developing innovative solutions to problems, especially related to reducing water use. For example, Mr.
Cooper explained that Apache Corp. is now using brackish water – which is salty and unfit for human
consumption – for fracking as an alternative to using freshwater. In terms of regulatory changes, Mr.
Tintera noted that Texas recently removed some special permit requirements to make it easier for
operators to use recycled or brackish water.
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An initial question for many countries will be who will regulate – Federal, state or local - and how will
regulatory responsibility be shared? For countries that do not have a conventional oil and gas framework
to start with, the challenges of developing such a framework for unconventional gas will be more acute.
Delegates were especially interested in hearing more about Mexico’s energy reforms, which will allow private
participation in the hydrocarbons sector for the first time in 75 years. As noted by Mr. Downing, Mexico
has significant shale gas and oil resources and many companies have already registered their interest in
participating in Mexico’s energy sector. In order to ensure local landowners receive benefits from the
developing energy sector, Mr. Downing explained that the new regulations ensure that surface owners are
entitled to0.5% to 2% of the revenues OR 0.5% to 3.0% of the revenues earned from the in situ (underground)
resources. The two categories depend on where the resources are located and essentially, “hard to find”
shale oil & gas resources will allow surface owners to earn around 3% of the revenues. Revenues are “gross
revenues” less a payment (which is a set amount) that is a contribution to the Mexican Stabilization Fund
(a trust run by the Banco de Mexico, the national bank). So in effect, surface owners are likely to get
something slightly less than 3% of the gross revenues. That’s a big incentive for individual landowners and
also an incentive for the community as a whole that will benefit from the Stabilization Fund.
Section 5: International Prospects and Updates from
Countries Prioritising Shale
Delegates were also eager to hear the very latest updates from countries that are prioritising shale oil and
gas development. Robert Clarke, Manager - Unconventional Oil and Gas, Wood Mackenzie moderated
a panel on this topic and highlighted a number of global shale plays with particular attention on Mexico,
the Vaca Meurta in Argentina which is an “unconventional geologist’s dream play” with thick beds, high
TOC and favorable porosity, and Russia.
Outside of today’s panel, there are three other international plays
that are candidates for discussion
Unconventional assets in Mexico, Argentina, and Russia are top-tier opportunities
Mexico Shale - Two distinct plays are
unfolding, a Cretaceous extension of
the Eagle Ford, and a Jurassic oily
play further south. The Jurassic
Pimienta play boasts more favorable
indicative economics.
Russian Tight Oil – Compared to massive
Bazhenov, the smaller Domanik boasts more
carbonate-prone facies, is shallower, is better
accepting of fracturing treatments, and has lower
well costs. The Domanik’s high TOC supports it
having very high resource-in-place estimates. Export
duties must be reduced for the plays to be economic.
Argentina’s Vaca Muerta Shale – This is the most successful
non-US play to date. It has been technically proven and
operational efficiencies are already starting to set in. We
believe that the Utica oil window is a suitable analogue.
Slide
presented
by Robert Clarke, Manager - Unconventional Oil and Gas, Wood Mackenzie
3
Trusted commercial intelligence
www.woodmac.com
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Selwyn Granwill Adams, Principal Geologist, Petroleum Agency SA provided an overview and update
on shale gas developments in South Africa. Following a moratorium on shale gas development due
to public concerns, the South African government appointed a task team to conduct a study on the
impacts of shale gas development. In 2012, that study was released and recommended that shale
gas be allowed to proceed subject to a new regulatory framework. In October 2013, the government
presented the proposed regulations, which were subject to public comment. In February 2014, the
government imposed another moratorium that excluded applications that had already been received to
date. As it stands now, regulations have been drafted but not yet promulgated so it remains to be seen
whether South Africa’s shale oil and gas industry takes off.
Additional developments in international shale gas and oil development from key countries in the Asia
Pacific Basin are discussed below.
SECTION 6: ASIA PACIFIC DAY
About the Author
David Livingston
David Livingston is an associate in the Carnegie Endowment’s Energy and Climate Program, where
his research focuses on innovation and risk management in the energy sector. He previously worked
at the World Trade Organization in Geneva and served as an adviser to the director of the Energy
and Climate Change Branch of the United Nations Industrial Development Organization in Vienna.
Livingston is a member of the Aspen Institute, the International Association for Energy Economics,
and the Royal Institute for International Affairs (Chatham House). He also serves on the editorial
board of the International Shale Gas & Oil Journal.
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Top 10 Technically Recoverable
Shale Resources
Oil
India
96
India
3.8
Slide presented by David W Livingston, Associate, Carnegie Endowment
SUMMARY
The first panel of the Asia Pacific Day brought together individuals with a unique vantage point on
shale development in Asia. Moderated by David W Livingston, Associate, Carnegie Endowment, the
panel was comprised of Hu Wenrui, Former Vice President, PetroChina and President, Beijing Energy
Association; Jeffrey Haworth, Executive Director, Department of Mines & Petroleum - The Western
Australian Government; and Goutam Chakraborty, Deputy General Manager, Directorate General of
Hydrocarbons - India Ministry of Petroleum & Natural Gas.
Prospective shale countries in the Asia Pacific region are in a global competition for talent, technology,
capital, and industry attention. In terms of recoverable in-ground resources, China and Australia both rank
in the top ten in terms of shale gas (1st and 7th) and shale oil (3rd and 6th), respectively. India, though
not displaying as prolific of resources in absolute terms, still boasts approximately 100 trillion cubic
feet of shale gas and just under 4 billion barrels of shale oil. Livingston noted that in the International
Energy Association’s “Golden Age of Gas” scenario, China, India and Australia will be the three largest
contributors, after the United States, to global unconventional gas supply to the year 2035. A number of
lesser-recognized challenges, including water availability, labor costs, and the need for domestic energy
pricing reforms were identified as focal points for the coming year.
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Slide presented by Hu Wenrui, Former Vice President, PetroChina and President,
Beijing Energy Association
Hu Wenrui outlined the development status and prospects of shale oil in China, starting with an overview
of active exploration basins. A deeper dive was provided for the Ordos Basin, where a liquids content over
70% prevails and shale oil production capacity of approximately 1.05 million tons per year is foreseen. In
terms of geological characteristics, Chinese shale oil is largely found in continental facies (as opposed
to marine facies in North America) and displays significant variation in terms of thickness. With a view
towards exploiting these significant domestic shale resources, Chinese oil and gas companies have
developed four key techniques: seismic, logging, horizontal well drilling, and stimulated reservoir volume
fracturing. Shale oil is expected to account for 15-20% of China’s total oil production in 2030.
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Australia
Slide presented by Jeffrey Haworth, Executive Director, Department of Mines & Petroleum Government
Government of
of Western
Western Australia
Australia Department
Department of
of Mines
Mines and
and Petroleum
Petroleum
The Western Australian Government
Jeffrey Haworth opened by observing that Australia boasts both plentiful shale oil and gas resources,
with development largely driven by hydrocarbon demand from China. Western Australia’s existing
conventional gas reserves in the Carnarvon and Perth basins are declining, while the Perth and Canning
basins both display promising shale oil and gas resources. Key challenges for shale development in
Western Australia include remoteness, cost of labor, equipment availability, lack of infrastructure, and the
idiosyncrasies of the domestic market. It was noted that additional AC-hydraulic rigs and pump spreads
are needed, and that drilling and completion costs must be reduced to a level equivalent to 150% of
typical US costs (or lower) in order for Western Australian shale to be competitive.
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WA Domestic Gas Supply
2%
New
Slide presented by Jeffrey Haworth, Executive Director, Department of Mines & Petroleum Government
Government of
of Western
Western Australia
Australia Department
Department of
of Mines
Mines and
and Petroleum
Petroleum
The Western Australian Government
The regulatory framework seeks to promote high levels of transparency and the maintenance of a social
license to operate, and thus requires the disclosure of an environmental plan, a well integrity plan, a
safety system, and an access agreement across all phases of development. It was noted that Western
Australia’s government has adopted a pragmatic, constructive relationship with shale operators, working
to build capacity throughout industry for understanding and complying with stringent requirements
and high standards. Moreover, Australia approaches shale development with a “whole of government”
approach, with several states simultaneously working to design frameworks for developing onshore
gas reserves. Western Australia’s framework is expected some time in 2015. Finally, although much of
the current development is being conducted with foreign markets in mind, Western Australia expects
domestic gas supply shortages the early to mid 2020s, perhaps necessitating domestic market reforms.
In any case, domestic markets will drive short-term returns while LNG export capacity will drive longterm returns.
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Shale Oil & Gas Prospect in India
BASIN
4
1
2
5
3
07/11/14
1
CAMBAY
2
KRISHNAGODAVARI
ONSHORE
GEOLOGIC
AGE OF
SOURCE
ROCKS
EOCENE
CRETACEOUS
3
CAUVERY –
ONSHORE
CRETACEOUS
4
GONDWANA
PERMIAN
5
ASSAM-ARAKAN
EOCENE
BASINS STUDIED
IN FIRST PHASE
5th World Shale Oil & Gas Summit
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Slide presented by Goutam Chakraborty Deputy General Manager, Directorate General of
Hydrocarbons - India Ministry of Petroleum & Natural Gas
Goutam Chakraborty outlined strides being made towards shale development in India, beginning with an
overview of the country’s 26 sedimentary basins and 3.14 million sq. km of exploration acreage, of which
32% remains to be licensed. The New Exploration Licensing Policy (NELP) was conceptualized by the
government of India in the late 1990s to provide an equal platform to both public and private companies,
and separate contracts were awarded under different policies including NELP as well as the Coal Bed
Methane (CBM) policy for CBM blocks. Industry had been arguing that exploration becomes difficult
when there is overlapping of resources in certain blocks each with separate contractual conditions.
Moving forward, it was understood that additional modernization of the oil and gas policy framework
would be needed.
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TENTATIVE AREA
IDENTIFIED
FOR
NELP-X BLOCKS
TOTAL AREA : 0.54 million sq km
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Slide presented by Goutam Chakraborty Deputy General Manager, Directorate General of
Hydrocarbons - India Ministry of Petroleum & Natural Gas
The Indian government is accordingly moving ahead with a new Uniform Licensing Policy (ULP) to bring
uniformity in contractual provisions for exploration and production of all hydrocarbon resources. The
ULP has been proposed, but remains to be officially adopted as deliberation over final details continues.
In October, India moved a step closer to market-driven fuel pricing by lifting diesel price controls and
raising the cost of natural gas by some 30%. The new price of locally-produced gas came into effect
on November 1, 2014. The government hopes the higher gas price, to be revised every six months, will
boost competition by encouraging private companies to drill for shale. The ULP may also include new
revenue-sharing provisions, and no direct government investment or participation in the exploration
and production is envisaged. The revenue-sharing mechanism is expected to include an incremental
production-based sliding scale combined with a fixed, price-sensitive scale. India expects that increasingly
reliable estimates of its unconventional hydrocarbon reserves, combined with a new policy framework
and existing institutions will combine to increase private sector investment in the years ahead.
All of the above are the writer’s personal comments and understandings of the speakers’ presentations and panel
discussions at the CWC World Shale Oil & Gas Summit. The writer accepts no liability for any reliance placed upon
the above by any person whatsoever; neither does it constitute any recommendation relating to any investment.
If you have any feedback on this report or require further information,
please contact Ailsa Matkevich, Producer, CWC Group at
[email protected] or call +44 20 7978 0000
www.world-shale.com
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